Seasonal use products may include vehicles such as motorcycles, motor homes, boats, off-road vehicles and snowmobiles. Customers desiring to obtain insurance for seasonal use vehicles may be considered “seasonal customers” who, for example in the case of motorcycle insurance in cold climate states, may enter into a new policy in the spring, cancel it in the fall, and repeat this process each year. For an insurer, significant amounts of this type of behavior may cause net losses, because payouts on loss claims for the group of seasonal customers may exceed collected premiums in a given year. For example, the pool of seasonal customers may have a premium collection rate of only 50%, because only six months of premiums are paid, but incur 80% of the total losses during this six-month seasonal time frame.
In cases where insurance customers cancel and reinstate policies seasonally, an insurer's loss ratio, which represents the ratio of losses paid out to premiums collected, may exceed acceptable values. This may result in higher premiums for seasonal customers and/or other insurance customers. It may also cause an insurer to simply forego offering insurance coverage in states or regions.
Known approaches to addressing the above problems include short rating billing methods. Under a short rating billing method, an insurer may require an insurance customer to pay more of the premiums in advance to allow for seasonal risk variation. However, short rating billing methods may negatively impact customer loyalty because customers may perceive it to be unfair or penalizing. It would be advantageous to develop insurance billing methods to address the aforementioned shortcomings.